July 14, 2015    7 minute read

The Economics Behind ISIS

   July 14, 2015    7 minute read

The Economics Behind ISIS

The United States qualified it as the best-funded terrorist organisation of all times, but beyond the messages of terror and religious fanaticism it spreads all over the Arab world, the self-proclaimed Islamic State has to deal with economic and social issues just like any other country.

The primary objectives of the Islamic State in Iraq and Syria (ISIS) are essential to understand it, because before thinking of getting funded, every organisation has to set a goal driving the use of their resources. Daesh fights to unite the entire Arab world under the same flag and to impose a Sharia-based regime. This is carried out by fighting towards supremacy and against the Western powers that are deeply involved in the region.

That said, the organisation created in 1999 has supported Al-Qaeda in its operations until 2014 when the Sunni group started annexing land and expanding its territory to consequently proclaim a so-called “caliphate” in June 2014.

The reasons why the terrorist organisation had a relative facility to conquer a territory as big as Britain are obvious: following the removal of US troops from Iraq the country was left with a weak and vulnerable Shia government unable to fight terrorism. On the Syrian side, the civil war that is raging since 2011 and has killed over 200,000 civilians opened a wide breach for ISIS to grow in a country torn apart by religious disaccord.

However in order to build his empire, Abu Bakr al-Baghdadi, leader of the movement, needed to gather young fighters in order to lead the so-called jihad (explicit reference to the war engaged by the Middle East in response to the Crusades, role currently played by the US and its allies). ISIS coped with it in a rather singular way that defines its particularity: they promoted themselves through global propaganda and succeeded in enrolling between 20.000 and 35.000 jihadists from the Middle East, Africa and more surprising, Europe.

All the soldiers are to be paid between $350 and $500 a month (3 to 5 times the average salary), thus representing an expense of between $7m and $17.5m every month according to some estimates. These fighters also have to be armed and trained. Regarding the public administration, a vast majority of public workers are still paid by Bagdad and Damascus in an attempt to show the non-recognition of Daesh and to provide the local populations with decent public services. This can also be seen as a failure from the Islamic State to function as an organised State and will in the future benefit both Syrian and Iraqi governments.

However due to difficulties in supplying ISIS-controlled areas, these public services become worse by the day: Mosul cooking costs 10 times more than before, the mobile network does not work and rubbish isn’t collected at all. On top of this, electricity has to be generated by individuals, causing huge shortages both in energy and water.

 The harsh reality contrasts with the promises made by Daesh to feed its population, and giving free bread (as was made in Palmyra) will not feed an entire country.

“As a welfare state ISIS is failing”

This was observed by Tom Keating from the think-tank RUSI. But the main proof of economic misleading comes from the caps imposed by a ghost administration on every product sold in the controlled territory. These caps, being too low compared to the real production costs, caused prices to rise as sellers’ margins shrank. For instance, some hospitals now have to charge for the electricity used to light a room in order to get around those caps. Due to its disorganisation and orientation towards a war economy, the Islamic State needs important flows of revenues and has so far succeeded in raising funds, although not being quite sustainable.

The biggest and most regular source of revenue for Daesh comes from the oil fields conquered with the early territorial expansion. According to the UN, those generate between $0.8m and $1.6m a day. This crude oil is then resold in Turkey at a discount that can go up to 70%, and the potential is huge since Iraq is the second producer of oil in the world after Saudi Arabia.

By raising taxes by up to 50% and drawing a very thin line between tax collection and extortion, ISIS collected in 2014 more than $600m from taxes. Those are mainly raised with no explicit reason and often constitute theft.

The third main source of income comes from rich donors, usually based in the Persian Gulf, which support the Islamic State in an attempt to unite the Middle-East under the same Sunni flag. Unofficially, as Daesh does not want to admit it cannot sustain itself financially, Kuwait and Saudi Arabia have transferred funds to the terrorist organisation last year. However since the recent involvements of Washington in the region it becomes harder and harder for funds to flow into ISIS.

In 2014, the organisation raised more than $500m from robbing banks all over the country. Looting did not end here: Daesh has also been accused by the international community of reselling antiquities on the black market while they constitute a national heritage dating back to ancient civilisations. Finally some of the organisation’s income comes from ransoms asked after kidnapping men and children for being Kurds, Shia or foreigners.

Until recently this business model was working well, but it has a major flaw: it is based on looting and extortion, which require both constant territorial expansion and the organisation of a proper State. There will be in the near future a moment when banks won’t have any more funds, museums will run out of statues and the population will begin to reject an organisation that does nothing but steal from them.

For that matter, if ISIS hopes to create a sustainable state it will have to diversify its revenues and build a public administration to content and restrain the local populations. The facts are not currently going in that direction though. Since the beginning of the year, Daesh has encountered difficulties in keeping control over some oil fields while the shrinking price of crude oil deeply harmed the organisation.

Furthermore the reduction in cash held by local banks, the emptiness of Mosul’s museums and the desertification of the area by minorities and foreigners have left the organisation with fewer revenues than last year. Recruitment and money transfers from abroad become harder to organise since Western countries increased controls and sanctions over foreign allies. Since the end of last year salaries paid to ISIS fighters have been cut by almost 75%.

In the country, locals begin to show their discontent towards Daesh.

“We’ve endured international sanctions, poverty, injustice. But it was never worse than it is now”

witnesses an inhabitant from Mosul. People are ready to accept stonings and beheadings, but they cannot support a State that does not provide for minimum public services and lacks of basic economic management.

As a matter of fact, ISIS still cannot be treated as a State but more as a powerful mafia. But wouldn’t it be happier with a primitive society than with a Westernised one? If one thing is certain, it is that Daesh will not last long if it does not change its policy and organise itself. Even if the State does eventually die, perhaps the ideology will stay, and the recent events that happened in France and Tunisia are here to remind us that religious fanaticism and terrorism are indeed everywhere.

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